Plaintiffs, investors in an independent bookstore, refused the request of defendants, the bookstore and its prior owner, to arbitrate a business dispute. The key language in the arbitration provision read: “Notwithstanding the foregoing, no arbitrator shall have the power to render equitable relief of any kind, and requests for such relief shall be referred to a court of competent jurisdiction.” The trial court denied defendants’ motion to compel arbitration, finding that plaintiffs’ equitable claims – the sole remaining claims at issue – were excluded from arbitration by the language in the arbitration provision. Appellants advanced a rather creative reading of the arbitration provision, distinguishing between the arbitrator’s ability to try any action and the court’s ability to grant equitable relief. Bachrach v. Compagno, Case No. B252454 (2/1 Jan. 6, 2015) (Johnson, Chaney, Bendix) (unpublished).

Appellants argued that under the clear language of the arbitration provision, any action to enforce or interpret the agreement had to be arbitrated, and that once the substantive issues were resolved, a party could turn to the court to obtain equitable relief. The Court of Appeal, however, rejected “a tortured conclusion that the trial court has the power only to perform the ministerial act of rubber-stamping an arbitrator’s conclusive ruling.”

Backflip and Cisco entered into a software license and escrow agreement, whereby Backflip’s software was to be released to Cisco upon the occurrence of certain events, one of which was Backflip’s discontinuing its software maintenance/support. If the release event occurred, Cisco could send a notice to escrow, Backflip could send a counter-notice if it disagreed, and the parties could arbitrate the dispute.

After giving notice Backflip would stop responding to maintenance requests from Cisco, a former Backflip CEO “authorized” release of the software from escrow to Cisco. Escrow closed, and the software was released to Cisco. Backflip, however, contended Cisco should have known action by Backflip’s former CEO was not authorized, resulting in Cisco’s misappropriation of the software.

The Court of Appeal agreed with the trial court and with Backflip that the scope of the parties’ arbitration agreement, as set forth in the license and escrow agreements, only “encompassed a dispute regarding the release of Backflip’s escrow materials while those materials remained in the possession of the escrow agent.” The parties contemplated arbitration would occur before the software was released from escrow. Thus, the arbitration clause became irrelevant here, once the software was released.

The Court distinguishes cases in which the arbitration requirement continues, as cases where the arbitration clause was broader than here or explicitly survives termination of an agreement.

10/01/2014

Judgment Confirming Arbitration Award Is Reversed, And Appeal From Sanction Order Is Dismissed.

Wendy Kronick appealed from the trial court’s judgment confirming an arbitration award in favor of her former family law attorney, Debra A. Opri. Kronick v. Opri, B241510 (2/1 Sept. 30, 2014) (Ashmann-Gerst, Chavez, Ferns) (unpublished). Ms. Kronick argued that the trial judge committed errors by failing to follow the procedure dictated by an arbitration clause when the judge appointed the arbitrator in an attorney-client fee dispute.

Kronick initially provided the names of two arbitrators to Opri, who rejected them, and Opri provided names that Kronick rejected. Opri complained to Kronick about a “circular display of how much you seek to frustrate the arbitration process.” Eventually, the trial judge took control of the situation, and appointed Justice Sheila Sonenshine, Ret., as the arbitrator.

The arbitration clause provided, in relevant part:

“The initiator of the proceedings shall do so in writing by submitting two names of retired California court judges to the responding party, and if the responding party does not agree to any of the two nominees, within ten [10] days the responding party shall provide two names of retired California superior court judges from which the initiating party may choose one. If the parties cannot agree on an arbitrator, one shall be chosen by a court of competent jurisdiction from the four nominees.”

The Court of Appeal concluded that “[t]he trial court committed multiple errors” when appointing the arbitrator – by my count, at least six errors: (1) the trial court required Opri to unilaterally select an arbitral forum before the arbitrator was agreed upon, whereas the arbitration clause required selection of the arbitrator to dictate the arbitral forum; (2) the trial court erroneously accused Kronick of failing to submit two nominees; (3) the trial court erred by rejecting the two nominees, requiring Kronick instead to submit two names from JAMS; (4) the court held a continued hearing date on September 23, 2010, despite having told Kronick the hearing date would be October 23; (5) the court rejected Kronick’s two nominees because unacceptable to Opri, and accepted two new nominees from Opri, essentially giving Opri four nominees; (6) the court chose Justice Sonenshine, though she was not one of Opri’s original two nominees, and did not give Kronick an opportunity to agree to a new nominee.

Needless to say, the Court of Appeal reversed the judgment confirming the arbitration award.

However, Kronick’s appeal of a discovery sanction of $3,200 was dismissed, because it was less than $5,000, and non-appealable. On the brighter side for Kronick, the Court of Appeal informs us that she and her husband “reconciled” – and it was legal work related to their marital dispute that led to Opri’s fee claim against Kronick in the first place.

BONUS: Ms. Opri’s website describes her as “widely considered to be one of the most recognizable female litigation attorneys of the 21st Century, both in the courtroom and on television.” Ms. Kronick was the plaintiff in another case posted about on February 11, 2014, on California Attorney’s Fees, in which case, among other things, she claimed that the defendant kicked her seven-month old Dalmatian puppy in a park.

The interesting wrinkle in this case is that both sides treated allegations in Plaintiffs’ unverified complaint as binding judicial admissions. In that unverified complaint, Plaintiffs referenced three reality shows, while claiming subsequently they were only seeking damages for The Players Club. The arbitration provision, however, did not mention The Players Club.

You can see where this is heading: Plaintiffs alleged they were not bound to arbitrate, because they only sought damages related to The Players Club, a reality show not mentioned by the arbitration provisions. Defendants, however, tried to stick Plaintiffs with judicial admissions, based on the complaint, that all three reality shows were implicated in the dispute, and therefore somehow covered by the various arbitration clauses.

Agreeing with Plaintiffs (and the trial court) that The Players Club dispute was not covered by an arbitration clause, the Court of Appeal explained that the doctrine that judicial admissions place factual allegations beyond dispute does not “apply when the admissions have been superseded by amendment, particularly when the original pleading is unverified. . . . To the extent respondents represent their claims are limited to ‘The Players Club,’ they have abandoned any alleged dispute regarding ‘The Natural’ or ‘Bragging Rights.’” Thus, the Court of Appeal has saved Plaintiffs from being ensnared by their own pleadings, while at the same time clarifying Plaintiffs have abandoned any claims that might have been covered by an arbitration clause.

Note: In an April 18, 2013 post, I wrote about another case in which a party seeking to avoid arbitration managed to avoid a binding judicial admission. Barsegian v. Kessler & Kessler, 215 Cal.App.4th 446 (2013) (partially certified for publication). In Barsegian, at oral argument, the defendant seeking to compel arbitration based on plaintiff’s allegation of agency, also made it clear it was reserving its right to argue it was not bound by the allegation of agency. Absent the agreement of the opposing party seeking a binding judicial admission, the court was not willing to treat the pleading as an admission.

Employer Kroger Co., parent of Ralphs, which had loaded an arbitration policy with one-sided provisions favoring the employer, moved to compel arbitration of an employment discrimination action. Unpersuaded that the arbitration policy really existed when the employee read and signed the employment application, the trial court denied Kroger’s motion.

In what could only be described as an ironic twist, the Court of Appeal accepted the trial judge’s finding that the stand-alone four-page arbitration policy may not have been part of the employment agreement, and concluded that here, that helped the employer -- and possibly saved Kroger from having to defend an unconscionable arbitration policy.

Here, the employment application itself contained a broad agreement to arbitrate employment-related disputes, separate and apart from the arbitration policy document. The failure to incorporate the additional arbitration policy simply meant that the relationship between the parties would be governed by the California Arbitration Act, requiring an arbitrator to be chosen pursuant to the provisions of the CAA.

Also, the employer’s failure to incorporate the arbitration policy document very possibly stopped the Court of Appeal from torpedoing that policy, because the arbitration policy presented serious lopsidedness issues. Under the terms of the arbitration policy, arbitrators from the AAA and JAMS were not permitted to administer the arbitration – making it more likely, in the view of the trial judge, that Kroger would be able to hand-pick an individual arbitrator dependent on Kroger’s patronage. The trial judge also found that a fee provision requiring plaintiff to pay 50% up front for the arbitration was unconscionable under Armendariz. Also, the arbitrator was only empowered to resolve a fee dispute if there was on-point US Supreme Court authority .

Fortunately (at least for the employer), because Kroger was unable to establish the contents of the arbitration policy were effective, the arbitration was controlled by California statutory and case law. Therefore, plaintiff’s arguments “that Kroger’s Arbitration Policy is procedurally and substantively unconscionable are meritless.”

Carter sued her former employer, Fannie Mae, for whistleblower retaliation. Fannie Mae moved, unsuccessfully, to compel arbitration, and appealed. The Court of Appeal explains that Carter did have an implied-in-fact agreement to arbitrate, but that the agreement is one-sided, and therefore substantively unconscionable. Specifically, “the contract cannot be enforced because it exempts the kinds of claims that Fannie Mae is likely to bring against employees, such as trade secret claims.”

The Court of Appeal refused to sever the unconscionably one-sided provisions: “We would have to rewrite the arbitration clause – which we cannot do – or somehow choose ‘what to leave in, what to leave out’ [quoting ‘Against the Wind,’ Bob Seger, 1980] which is also beyond our mandate.”

Comment: Note that Cruise v. Kroger, supra, didn’t address the need to sever, presumably because Kroger failed to establish that the provisions in its four-page arbitration policy, lopsided or otherwise, were ever part of the arbitration agreement.

On July 14, 2014, I blogged about Rebolledo v. Tilly’s, Inc., in which the Court of Appeal, 4th District, Division 3, affirmed the trial court’s order denying an employer’s motion to compel arbitration of an employee’s putative class action regarding statutory wage claims. The key to the case was that the operative language in the employment agreement provided for arbitration, except for “matters governed by the California Labor Commissioner.” The Court of Appeal held that the employee’s statutory wage claims were within the jurisdiction of the California Labor Commissioner if they would have fallen within its jurisdiction, even if the claims were not brought before the Commissioner – and that was the case. Therefore, the statutory wage claims were excluded from arbitration. On August 6, 2014, the Court certified the case for publication.

Also, Burdens Upon The Employee Were Not So Great As To Make Arbitration Provision Unconscionable

In our next case, the Court of Appeal, in a published opinion, reversed the trial court’s denial of a petition to compel arbitration. Galen v. Redfin Corporation, A138642 (1st Dist. Div. 1 July 21, 2014) (Dondero, Margulies, Becton) is an indication the law concerning arbitrability of employment claims is in a state of flux, sometimes creating substantial uncertainty as to whether an arbitration provision will be enforced.

The trial court concluded that plaintiff’s claims were based on statutory violations that were not encompassed by the parties’ agreement, and that if the claims were encompassed, the arbitration provision was unconscionable. The Court of Appeal disagreed on both points.

The trial court concluded that the Federal Arbitration Act (FAA) applied to the agreement; that California law applied because a Washington choice-of-law provision disclaimed the application of Washington law; that wage claims were outside the arbitration agreement; and that the arbitration provision was procedurally and substantively unconscionable.

The Court of Appeal agreed that the FAA applied. The Court found the choice-of-law provision, disclaiming the application of Washington “conflict or choice of law” laws to be ambiguous, and therefore applied California law. The Court interpreted the arbitration provision, which applied to disputes “arising out of or related to” the employment agreement, to include Labor Code section 229 wage claims. The Court’s discussion distinguishing and disagreeing with other California appellate cases is worth reading.

The Court assumed some element of procedural unconscionability – the contract was adhesive – but did not view the procedural issues as serious ones creating surprise or oppression.

Most interesting were the Court’s holdings on substantive unconscionability.

First, the Court was not troubled by the fact that the agreement included a reciprocal attorney’s fees provision, even though California Labor Code provisions did not allow the employer to get fees:

“It is true that a plaintiff employee is not responsible for the employer’s attorney fees if the employer prevails on an employee’s overtime claim. (Lab. Code, § 1194, subd. (a); Earley v. Superior Court (2000) 79 Cal.App.4th 1420, 1429.) Nevertheless, we cannot conclude that a mutual attorney fee provision ‘shocks the conscience’ simply because it fails to contemplate that there are some Labor Code claims that do not allow a prevailing employer to recover attorney’s fees from an employee.”

Second, the Court did not believe that plaintiff had “shown that the forum-selection clause is so one-sided as to ‘shock the conscience,’ or that it imposes harsh or oppressive terms.” The forum selection clause required plaintiff to arbitrate his employment claims in Washington, though he lived in Danville, California.

Judges must relax a little when they can say, as does Justice O’Leary, the author of the next opinion, “The sole issue presented in this appeal is simply a matter of contract interpretation.” Rebolledo v. Tilly’s, Inc., G048625 (4th Dist. Div. 3 July 8, 2014) (O’Leary, Ikola, Thompson) (unpublished).

Plaintiff Rebolledo brought claims against her employer for failure to provide meal periods, failure to provide rest periods, failure to pay wages upon termination, failure to itemize wage statements, unfair competition, and enforcement of the Private Attorneys General Act of 2004. The employer brought a motion to compel arbitration, and appealed when its motion was denied.

A 2001 Employment Agreement provided for arbitration, except for “matters governed by the California Labor Commissioner.” A 2004 Employment Agreement excluded from arbitration “any matter within the jurisdiction of the California Labor Commissioner.”. A 2005 Employment Agreement did not include an exception to arbitration.

The Court of Appeal sorted this out as follows: (1) Plaintiff’s claims were “within the jurisdiction of the California Labor Commissioner” if they were claims potentially within the jurisdiction of the California Labor Commissioner, regardless of whether they were ever brought before the Commissioner; (2) because the 2001 Employment Agreement required three signatures to amend it, and the 2005 agreement did not have those signatures, the 2005 agreement did not remove the exception to arbitration in the 2001 agreement.

Standard Of Review Pretty Much Ordained The Result Here, And Nothing Was Changed By Appealing

This is one of those “Cain v. Abel” disputes, in which beneficiaries/brothers (Douglas and Martin Buser), fought over their parents’ family trust. It appears Douglas fought tooth and nail, but unsuccessfully, getting hit with attorney’s fees assessed against his share of the trust estate, and monetary sanctions for his pursuit of an unmeritorious renewed motion or reconsideration petition. Buser v. Buser, D63381 (4th Dist. Div. 1 July 3, 2014) (Huffman, McIntyre, Aaron) (unpublished). Nothing was changed by Douglas’ appeal, except that Martin failed to get appellate sanctions, because the Court could not say that Douglas’ appeal was wholly frivolous.

The battling brothers had agreed to a settlement that included a broad arbitration provision, which settlement the trial court enforced, sending the disputed matters to arbitration. Because the brothers’ dispute was resolved with an arbitration award, the losing brother, Douglas, had a tough row to hoe to try and show the arbitrator exceeded his powers. As the Court made clear:

"’Our review of an arbitration award requires us to extend to it every intendment of validity and the party claiming error has the burden of supporting his contention.’ (Ibid., citing Cobler v. Stanley, Barber, Southard, Brown & Associates (1990) 217 Cal.App.3d 518, 526 (Cobler).) It is well accepted ‘ “ ‘[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission.’”’”

Volpei, an investigator for the Ventura County District Attorney’s Office, sued the County for retaliation, harassment, and discrimination claims under the California Fair Employment and Housing Act. The County petitioned to compel arbitration, based on the dispute resolution provisions under the terms of a memorandum of agreement (MOA) between Volpei’s bargaining representative, the Ventura County Deput Sheriffs’ Associaiton, and the County.

The sheriff of McAlester, Oklahoma, sitting in front of the jail. He has been the sheriff for thirty years. 1936. Dorothea Lange, photographer. Library of Congress.

The trial judge concluded that Volpei was not bound to arbitrate his claims, and the Court of Appeal agreed with the trial judge.

First, it is significant that statutory, rather than merely contractual rights are at issue. California courts have not been so quick to find a waiver of the right to sue for a violation of statutory claims. Here, the MOA did “not provide for a clear and unmistakable waiver of Volpei’s right to a judicial forum for his statutory discrimination claims.”

The grievance procedure at issue provided that a grievance unresolved after the employee’s filing of an informal complaint and a three-step formal complaint process “may be submitted to arbitration by the [Ventura County Deputy Sheriffs’] Association . . . “ The Court of Appeal pointed out that the Association was not a party to the lawsuit; that the submission of a matter to arbitration was unilaterally in favor of the Association, and that the word “may” could be construed as meaning permissive rather than mandatory. Other cases that construed “may” to mean “shall”, within the context of compelling arbitration, were distinguishable, as they pertained to waiver of a judicial forum where non-statutory rights were involved.

Here, however, the Court refused to find a “clear and unmistakable” waiver by Volpei of his right to a judicial forum: “The provision may have required arbitration of contractual claims, and may have permitted Volpei to voluntarily arbitrate his statutory claims, but it did not unambiguously require arbitration as the sole and exclusive remedy for his statutory discrimination claim.”